The last few weeks of the earnings season have pointed to a new retail trend. While big names such as Macy's and J.C. Penney have reported disappointing earnings, the U.S. retail sales reported its biggest rise in over a year. So where are consumers spending?
"If you look at the composition of the retail numbers, people are eating out, people are shopping online," Stacey Widlitz, President, at SW Retail Advisors told CNBC. "Department stores are crumbling, which is in line with the numbers we saw, so people are shopping differently and again we have talked about this so many times that they are spending on experience."
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U.S. retail sales figure last week showed consumers are spending plenty on sectors such as auto vehicles and sporting goods but not at traditional department stores. A string of disappointing earnings from retailers such as Macy's, J.C Penney and Nordstrom slammed retail stocks and put pressure on the Wall Street. Macy's had its biggest one-day loss since 2008, as the department store chain reported a 36 percent year-over-year drop in operating income.
During the first quarter, Macy's said its comparable sales fell 5.6 percent. That marks a deceleration from its fourth-quarter same-store sales decline of 4.3 percent, and represents its most severe decrease in this metric since the second quarter of 2009. During that quarter, Macy's comparable sales slid 9.5 percent. This has led to concern among analysts who think a growing and recovering economy should encourage more spending. But it looks like consumers have other plans with their money and high street shopping is not one of them.
"Stores like Macy's and JC Penney reported weak earnings and their stocks fell between 10-15 percent and then we got the best retail sales in more than a year," Widlitz said explaining that most of the growth is happening online.
That certainly seems to be true in the case of UK. A recent report compiled by Markit on behalf of Visa Europe suggests that online spending has grown at the fastest rate for 16 months with e-commerce growth rate of 8.4 percent year-on-year. The report that reflects overall consumer spending across the UK showed total consumer spending in April saw an increase by 2.5 percent year-on-year. Clothing and footwear saw the biggest fall since September 2014 but some of the strongest rates of expansion were seen across recreation and culture (up 7.9 percent), hotels, restaurant & bars (plus 6.6 percent) and household goods (3 percent).
"Growth in consumables remains evident, but consumer spending is increasingly focused on the experience economy," Kevin Jenkins, Director at Visa Europe said in a note. "Eating out, booking holidays and discovering new experiences are all driving spending growth at a time when the lower cost of living is creating higher disposable incomes. In a month of mostly growth, the only sector to disappoint was clothing and footwear, again highlighting this shift."
The trend was highlighted in the UK retail sales this month that reported the sharpest drop in data in April after sales fell 0.9 percent on a year earlier, the biggest drop since last August. However, online spending continued to rise.
"April saw retailers growing their online non-food sales by 6.6 percent which, despite being a healthy increase, is the slowest growth since April 2013," Helen Dickinson, chief executive at British Retail Consortium, said in an analysis note. "However, online remained a significant proportion of total non-food retail sales at 20.9 percent; only fractionally down on the highest on record."
While a number of retail analysts blamed the cold weather in April for keeping shoppers away from the high street, some have pointed to shoppers moving away from high street stores to online shopping. Data shows that an increasing number of consumers also registered higher expenditure on day trips, meals out and home furnishings. Separate figures from a report done by Barclaycard shows consumer spending rose just 1.9 percent in April, well below a rolling 12-month average of 3.7 percent. While a decline was seen in essentials causing weaker earnings from supermarkets such as Sainsbury's and Next, leisure spending such as on air travel and restaurants went up.
"With unseasonably cold weather delaying the sales of spring ranges in the month, consumers chose to spruce up well-worn winter warmers with jewellery and accessories from the comfort of the living room rather than hitting the high-street for new outfits," David McCorquedale, head of retail at KPMG said. "Health and beauty also fared well as retailers extended online ranges and promotions."
McCorquedale explained that as we head into summer and consumers start to make their way back into high street shops, online retailers may need to bolster offerings. A bit like Amazon that has continued to remain higher? The online retailer posted a 28 percent increase in its sales year-on-year highlighting the growing increase in online shopping among consumers globally.
SW Retail Advisors's Widlitz told CNBC that Amazon is gaining massively from the growth happening online.
"Amazon you cannot underestimate. You can order as much as you want and if you are a Prime customer, as 25 percent of the US households are, you can order it, it reaches your home and you can return it."
This has made it easier for customers to order what they like from the comfort of their home. However, Widlitz explains that the problem with retailers today is they are all chasing the same thing, be it leisure, beauty or lingerie. "And when everybody goes after the same thing, growth eventually hits the wall."